Wealth funds, recipients adopt investing principles

WASHINGTON (Reuters) - Government-owned wealth funds and the countries that accept their investments agreed on Saturday to a set of principles aimed at ensuring that both sides play by the rules.

These wealth funds, worth more than $2 trillion and fed by excess reserves in countries such as China and the oil exporting powers, had been a source of angst in some Western countries because of worries that they would base their investments on political, rather than economic, goals.

The funds themselves have expressed concern that Western countries would discriminate against them, and say that because they have long-term investment horizons and deep pockets, they can serve as a stabilizing force in turbulent markets.

The International Working Group of Sovereign Wealth Funds, made up of countries such as Qatar and Russia that hold large funds as well as recipient countries including the United States, established 24 voluntary principles.

Hamad Al Suwaidi, director of the Abu Dhabi Investment Authority, said the principles sought to "ensure that the international investment environment will remain open."

The principles call on wealth funds to have in place a transparent and sound governance structure, to comply with regulatory and disclosure requirements in countries in which they invest, to ensure that they base their decisions on economic considerations, and to help maintain a stable financial system.

At a press conference, Al Suwaidi said the funds' commitment to transparency should be an indication of their willingness to be important participants in turbulent times. "We invest based on economics and not on politics," he said.

The U.S. Treasury Department said the principles would "promote a better understanding" of wealth funds and reduce protectionist pressure in host countries.

The wealth funds became a hot topic of discussion last year when they invested in banks including Merrill Lynch, Morgan Stanley, Citigroup and UBS AG. However, they have been quiet during the latest bout of market turmoil.

Some analysts have hoped that wealth funds will step in to buy downtrodden assets and help revive markets hard hit by the credit crisis, but David Murray, chairman of the Australian Future Fund, said that was "not the role of sovereign wealth funds."